Factual and Procedural Background
The Claimant, a registered freehold owner of commercial premises known as Centaur House located at 91 Great George Street, Leeds, brought a claim against two Defendants concerning unpaid rent and associated sums under a lease agreement. The premises have been used as a gym and were originally leased to the first Defendant under a 25-year lease commencing in 1998. The lease was assigned in 2000 to a third party, the current tenant, with the first Defendant guaranteeing the tenant's obligations and the second Defendant acting as guarantor of the first Defendant's obligations under the lease and related agreements.
The Claimant sought summary judgment for arrears of rent and additional costs totaling £141,255.22, relating primarily to rent due from September and December 2021. The tenant underwent a court-approved restructuring plan under Part 26A of the Companies Act 2006, which effectively altered its liability for the rent. The central dispute concerns whether this restructuring plan discharged the tenant’s rent obligations and whether this discharge also affected the Defendants' liabilities as guarantors under the lease and related agreements.
The hearing was conducted remotely and adjourned for consideration of submissions before this written judgment was delivered.
Legal Issues Presented
- Whether the restructuring plan sanctioned under Part 26A of the Companies Act 2006 effectively releases the tenant from liability for rent and other sums under the lease, thereby extinguishing the sums claimed by the Claimant.
- Whether the restructuring plan affects the liability of third-party guarantors who are not parties to the plan, specifically the Defendants in this case.
- The proper legal effect of a restructuring plan under Part 26A in relation to leases and guarantees, including whether it operates by agreement or by operation of law.
- Whether the Defendants’ obligations under the Licence to Assign and Guarantee survive the restructuring plan and remain enforceable.
- Whether there are any grounds to refuse summary judgment and require a full trial.
Arguments of the Parties
Claimant's Arguments
- The restructuring plan operates as a statutory scheme by operation of law, similar to schemes of arrangement under Part 26, and does not release third-party guarantors from liability.
- The lease and related agreements remain valid and enforceable against the Defendants despite the tenant's release under the plan.
- The Defendants' contractual obligations under the Licence to Assign explicitly preserve the landlord’s rights against the guarantors notwithstanding any variation or release affecting the tenant.
- The restructuring plan does not rewrite the lease but releases the tenant from liability, leaving the Defendants liable for rent that has fallen due.
- There is no reason to refuse summary judgment as the issues are primarily legal and all evidence necessary for proper determination has been presented.
Defendants' Arguments
- The restructuring plan varied the lease terms, released the tenant from outstanding liabilities, and reduced rent payable under the lease to zero during the plan's duration.
- The plan’s provision deeming Schedule 2 to take effect as a deed implies a consensual variation of the lease, which should discharge the guarantors under the principle that a surety is discharged by variation without consent.
- The Claimant has not produced the assignment document, which may contain material terms affecting liability.
- There are compelling reasons for the claim to be determined at trial rather than by summary judgment, including the novel legal points regarding Part 26A and potential impacts on third parties.
- The Claimant should be required to account for any payments received under the plan to avoid double recovery.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Holmes v Brunskill [1878] 3 Q.B.D. 495 CA |
A surety is discharged from liability if the principal contract is varied without consent. |
The court rejected the Defendants’ reliance on this case, holding that the plan’s effect was by operation of law, not by agreement, and the contractual terms preserved guarantor liability. |
| Samuels Finance Group plc v Beechmanor Ltd [1993] 67 P&CR 282 |
Contractual provisions preserving surety’s liability despite variations in the principal contract. |
The court found that the Licence to Assign contained clear terms preventing release of the guarantors by variation or exoneration of the tenant, consistent with this authority. |
| In re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch) |
Sanctioning of a restructuring plan under Part 26A and its effects on landlord-tenant relationships. |
The court relied on this judgment in interpreting the restructuring plan and its effects on Class D Landlords and leases. |
| Re Gategroup Guarantee Ltd [2021] EWHC 304 (Ch) |
Compromise or arrangement under Part 26A and the concept of "ricochet" claims against guarantors. |
The court noted this authority to explain that the plan’s effects on guarantors were within the scope of the compromise but did not address claims against third parties. |
| Johnson v Davies [1999] Ch 117 |
Effect of schemes of arrangement binding creditors by operation of law. |
The court applied this authority to confirm that restructuring plans under Part 26A operate similarly by statutory effect, not by agreement. |
| Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) |
Principles governing summary judgment and when courts should decide legal points without a full trial. |
The court applied these principles to justify deciding the legal issues on summary judgment, as the issues were legal and evidence was sufficient. |
| Multiplex Construction Europe Ltd v Dunne [2017] EWHC 3073 (TCC) |
Support for summary disposal of short points of law or construction. |
The court relied on this authority to support the decision to grant summary judgment on the legal issues. |
Court's Reasoning and Analysis
The court began by analysing the nature and effect of the restructuring plan sanctioned under Part 26A of the Companies Act 2006. It observed that the plan operates as a statutory scheme by operation of law, similar to schemes of arrangement under Part 26, rather than by agreement between the parties. This statutory operation means that while the plan releases the tenant company from its obligations under the lease, it does not alter the rights and liabilities of third-party guarantors.
The court emphasised that the restructuring plan does not rewrite the lease but releases the tenant from liability for rent and other sums, leaving the lease valid and subsisting as between the landlord and guarantors. Rent continues to fall due under the lease, and the guarantors remain liable for arrears notwithstanding the tenant’s release under the plan.
Contractual provisions in the Licence to Assign explicitly preserve the landlord’s rights against guarantors despite any variation or release affecting the tenant. The court rejected the argument that the plan’s provision deeming Schedule 2 to take effect as a deed constituted a consensual variation releasing the guarantors, holding that the release of the tenant was by operation of law and not by agreement.
The court also addressed the Defendants’ concerns about "ricochet" claims against the tenant arising from any judgment against them, concluding that such claims do not defeat the purpose of the plan and are unaffected by it. The limited remaining term of the lease and the scale of the tenant’s overall liabilities were also considered.
Finally, the court considered whether summary judgment was appropriate. It found the issues to be primarily legal, novel but short points of construction, and that all necessary evidence was before the court. The court rejected the Defendants’ submissions for a trial, including the absence of the assignment document and the suggestion that the tenant and other plan companies should be joined or make representations.
Holding and Implications
The court granted summary judgment in favour of the Claimant.
The court held that the restructuring plan under Part 26A releases the tenant from liability by operation of law but does not affect the guarantors’ continuing liability under the lease and Licence to Assign. The Defendants remain liable for the rent arrears claimed.
The direct effect is that the Claimant is entitled to recover the arrears from the Defendants without the need for a full trial. The court did not establish any new precedent beyond applying established principles of statutory schemes and suretyship to the novel context of Part 26A restructuring plans. The decision clarifies that such plans do not discharge third-party guarantors absent explicit provision.